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Working Paper, No. 2020-15, May 2020 Crossref
Heterogeneity in the Marginal Propensity to Consume: Evidence from Covid-19 Stimulus Payments (REVISED October 2020)

We identify 22,340 recipients of Covid-19 Economic Impact Payments in anonymized transaction-level debit card data from Facteus. We use an event study framework to show that in the two weeks following a sudden $1,200 payment from the IRS, consumers immediately increased spending by an average of $604, implying a marginal propensity to consume (MPC) of 50%. Consumer spending fell back to normal levels after two weeks. Stimulus recipients who live paycheck-to-paycheck spend 62% of the stimulus payment within two weeks, while recipients who save much of their monthly income spend only 35% of the stimulus payment within two weeks. We use the 2018 American Community Survey to re-weight our data to match the U.S. population. Ignoring equilibrium effects and assuming a constant MPC for each person, we estimate that the CARES Act’s $296 billion of stimulus payments increased consumer spending by $144 billion (49% of total outlays). A stimulus bill targeted at individuals with the highest MPCs could have increased consumer spending by the same amount at a cost of only $244 billion.


Working papers are not edited, and all opinions and errors are the responsibility of the author(s). The views expressed do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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